Monday, November 18, 2013

More people are reading now than ever, especially young people,
more options are available to reach readers than ever before, and yet
publishing is in a deep malaise. Why so glum? Well it turns out that
despiterecord-breaking
sales for some books, most books' sales are well below the industry's
high-water marks in the late 90's, and the mass-market paperback hascontinued
its steady decline. A pervasive attitude exists in publishing that our
glory days are behind us, and that the future will hold greater consolidation
in the big houses, and further dominance of the marketplace by online media
conglomerates.

Like the rest of America in this glorious recession of ours,
publishing professionals have been told to do more with less (in most cases a
lot less). Staffs have shrunk in editorial, contracts, and rights
departments at every major publisher. Imprints have been shuttered, or absorbed
into larger imprints. Several small and mid-sized presses have simply gone
bankrupt. And things just seem like they're getting worse.

In addition, there's an outright hostility among some authors in
some corners of the internet against publishers, editors, and agents. It's hard
not to feel a bit of malaise when the most lauded view of publishing is that it
is bureaucratic, cumbersome, exploitative and, worst of all, unnecessary.

While most criticism borders on theabusiveandmisinformed, sadly,
a lot of it iswarranted.
And, while the publishing industry has been more adaptive to the upset of
digital distribution systems on media content delivery than the music industry
or film and television industries have been (an admittedly low bar), it still
has more adapting to do. There are challenges out there that need to be
overcome, but there's also a lot of nonsense that needs to be dismissed as
such.

The first big issue at the heart of this malaise is the pervasive
belief among those in publishing that the digital marketplace is usurping the physical
marketplace.

E-book Conflation

Though it's a popular notion, there's no credible evidence (and
hardly any circumstantial evidence) to point to the notion that e-book sales
have cannibalized print sales in any meaningful way. The decline in print sales
predates the introduction of the Kindle, with sales peaking in 1999 and asteady
declinethat can undoubtedly
be tied not to the rise in e-books but to the leveling growth of the big
bookstore chains and larger trends in the retail economy in general.

The rise of Kindle just happened to coincide with the demise of
Borders, which may have resulted in the conflation of the dip in print sales,
with the rise in e-book sales. The tremendous growth in e-books is a separate phenomenon
from the decline in print books, and is, despite popular belief in publishing
circles, not a mixed bag at all. E-book growth has an unreservedly good thing;
in fact, it may be the only good news for publishing in the past decade.

88% of e-readers (according toPew
Research) are regular readers of physical books as well. The corollary that
these 88% are buying less physical books now that they have an e-reader is also not supported by the evidence. In fact, these e-readers are
still reliable print readers, who have now been transformed into e-book super consumers.
They read twice as many books than the average physical book reader, now
that they own an e-reader, and they are more likely than average to have bought
(rather than borrowed) their books. The remaining 12% of e-readers are also not former physical book readers, but new readers enticed by the convenience (and coolness) of e-readers.

In short, publishers are not losing print sales, because those
sales are being taken by e-book sales, they are losing print sales, because
they aren't trying to change their strategies to sell more print books after
failing at it for over a decade. The retail conglomerates pushed out the
indies, consolidated their shelf-space, and now are contracting, which means fewer
opportunities to sell in the physical marketplace. None of this has much
to do with e-book consumers who now find it more convenient to buy books
wherever they are.

Many in publishing (and certainly many self-published rabble-rousers)
are laboring under the illusion that the future of bookselling is digital, and
that physical books are bound to become publishing's vestigial limb.

Well it's not the case. Turns out people stilllove
books. Shrinking from the physical marketplace because of a poor
retail economy, and the contraction of overextended chain bookstores in lieu of
an e-book market that, after a period of extreme growth, appears to beleveling
out is a mistake. Publishers need to recommit themselves to physical
book publishing, and that means learning from past mistakes, investing in print
as a growth opportunity, and pushing forward with a smarter strategy that will
allow them to capitalize on the digital marketplace as well.

Owning Mistakes

Most of the publishing industry's self-inflicted injuries are
about empowering the wrong people. In the 90's that meant forfeiting most
marketing functions to the book retail conglomerates, and allowing them to
price independent book retail institutions out of business. In the '00s, it's
been turning over vital marketing functions to Amazon and letting them do the
same in the digital world. When publishers found they had created a monster in
Amazon, seeking an even larger corporation (Apple), with even less interest in
bookselling, as a bulwark against Amazon's predatory pricing was also a huge
mistake, one that plunged them into an internecine battle between vertically
integrated device manufacturers/digital distributors with anti-trust
implications.

When publishers weren't backing the wrong horse, they were buying
the wrong properties. Nobody forced Penguin to buy Author Solutions, nor
did anyone force the publishers to spend money on the joint venture Bookish,
when all that money would have been better invested in buying the already
extent (and quite successful) Goodreads (which later was bought by Amazon). The wealth of consumer data housed in Goodreads, and types of marketing opportunities provided by the platform (provided publishers didn't change things) could have meant a fortune for publishers, had they decided to acquire it jointly.

Most mistakes have just been a matter of priorities. Publishers prioritized stopping piracy, over increasing access to
digital content, which further put them in the thrall of Amazon, Apple, and
Barnes and Noble by pricing other DRM free e-reading formats and devices out of
the market.DRM
is badfor Publishers,
independents, and, most importantly, consumers. It also doesn't
work. Recent experiments with abandoning DRM have provenquite
successful, and yet most imprints still cling to the notion that the key to
holding the line is treating every customer as a potential criminal.

Meanwhile, publishers have been consolidating their publicity and
marketing departments, at a time where marketing is their one most valuable
asset, and the one most likely to actually earn them money. Publishing
marketing is in a sorry state. They do tremendous work, but they do it
blindly. In a world awash in consumer data, publishers are completely in
the dark about the lifeblood of their business, and willfully so. By having a
single-minded focus on the wholesale business of publishing, where their main
concern is the retailer as customer, they've lost sight of who really matters:
the end users (see: readers).

What publishers ought to have done a long time ago, and ought to devote themselves to now, is marketing directly to readers, and making partnerships with a
larger variety of physical and digital retailers. That means dividing
promotions, and co-op buys equally between the large accounts and the indies.
Promotions directed at indie bookstores that agree to host in store events,
rather than lazily relying on merchandising provided by the big box stores, is
where the future of the physical business is.

The strip mall big-box stores are dying
out. Malls are the ones most "disrupted" by large
online retailers, not necessarily bookstores. Since malls are no longer
the most convenient shopping experience, they need a new strategy to get people
into the stores. That strategy is to make the store a destination for
more than just shopping. Independent bookstores are utilizing the same
strategy and seeing a resurgence.
TheABAhas
nearly twice as many member stores as Barnes and Noble has stores, and yet
co-op buys increasingly go to B&N. It's certainly harder to buy co-op
and run promotions without the help of a central executive authority, but that
doesn't make it less worthwhile an investment.

Likewise, working with smaller device manufacturers, and e-tail book platforms (including subscription services) to make exclusive content available on the condition that they share user data, rather than paying Amazon to administer promotions is probably worth trying. Amazon is getting fat off publishers' content, discounting it to undermine the publishers' sales elsewhere, and using the publishers' own customer's data to do it. So why should publishers continue to encourage them by devoting their budgets to pay Amazon to run promotions?

Diversity is the spice of life, and publishers should be looking
to empower as many different partners as they can possibly empower. Growing the
pie means making more money in aggregate, it also grants one better leverage
over the big retailers without the attendant anti-trust litigation. And that is
certainly a good first step towards breaking the current publishing malaise.
The second step is, of course, to...

Sell More Books

…And I don't mean more e-books, though, that's certainly a swell
idea too. I mean more physical books, mass-market paperback books to be
specific. If we accept the notion that physical book sales are in
decline, and that attendant raise in e-book sales is largely unrelated to this,
then we can start to look towards a solution to the problem of the shrinking of
the physical marketplace.

The biggest impediment towards the sales of physical books,
publishers will tell you, is that there is limited shelf space. They say
that as if shelving weren't a renewable resource. The real problem here
is not that there are too many books and too few shelves; it's that there are
too many potential readers out there who will never encounter a book where they live, where they work, or where they shop.

Waiting for retailers to increase
their capacity to receive your books is not a winning strategy. Limiting the
options available in order to fit the "new reality" of less shelf
space is also not a winning strategy. Yet, that's exactly what publishers
have been doing for the past decade, while blaming the decline in print sales
on the twin phantoms of e-book cannibalization and online piracy instead of on
poor selection, decrease in foot traffic, and pricing inflexibility.

The response to the decline in mass-market edition sales across
the industry has been to decrease first-printings for all mass-market editions. The whole point of the mass-market edition is to cater to the
mass-market. It's not really a mass, when you cut first printings in half
or more and are absent from marketplace in most areas where you used to have a
presence. Arguably, those old readers didn't disappear, and they weren't
hijacked by cannibal e-readers, or lured into the pirate's life, they just
stopped shopping where publishers used to sell their books. It's high
time that publishers be brave, and attempt to find them again.

In short, it's time to go big or go home (so far publishers have
opted to go home). Publishers need to once again, wield the weapon of the mass-market
paperback to fell their foes. It's time to look for new vistas, rather than
hoping to do more with less. If publishers retreat from the marketplace, then they diminish themselves. A myopic focus on individual book performance is a coffin nail. You can expect that most books will fail spectacularly in mass-market, but the ones that succeed will cover the losses. The worst thing publishers can do is continue to retreat from this marketplace. The reason for the diminished sales in mass market has been diminished expectations. Mass-market editions shouldn't be an afterthought. Treat them like the primary edition, and they'll sell that way. If the bookstores chains don't buy that, then find other options.

That means going with sales agencies that specialize in
non-standard retailers for books, and look to place book displays wherever
people shop, wherever people wait, wherever people go. There should be
more books at the supermarket checkout line,book vending machines at the DMV, and in cardboard displays with books at the hair salon. Ubiquity is a necessity when you acknowledge that book discovery is the one clear advantage the physical marketplace still maintains. Publishers should be looking to expand their reach, regardless of what the bookstores are doing.

It also means, as I stated before, dividing promotional money
between the big boys and the independents. You want more shelf space?
Help the small fries so they can expand, and get them to work for it by holding
in store events for your authors. The small fries will be happy for your business, the big box stores will squeeze you dry to pay their creditors, and offer you less every year.

In addition, more could be done with the shelf space already available, by pressuring buyers to cycle books out more frequently, and to offer more variety.
Putting up the same five best-selling thriller authors in hardcover on a small
display is a waste of everyone's time. Everybody shopping has already bought
that book, and they probably got it for cheaper on Amazon. Publishers could
just as easily replace that hardcover with two mass-market paperbacks from two
different genres, one a bestselling author, and the other a debut (even better:
package them together and sell them for a bundled price). The mass-market is
your friend when it comes to limited shelf space. It leads to greater
variety and better pricing competition compared to the online retailers (and
other forms of media like DVDs, CDs, & video games). If Sales can treat the mass market like a primary edition, so will the buyers, and so will customers. Especially if you get creative with sales strategies, like bundling.

The spike in e-book sales should tell you that people are
interested in reading more and interested in buying lots of books with greater
frequency across a more diverse selection, provided that it’s convenient to do
so and that there is...

Competitive Pricing

Another lesson Publishers can learn from the e-book marketplace is
just how sensitive readers are to pricing. Again, the mass-market paperback is
designed to be competitive in this arena. You want readers to pull the trigger
on the first book from a new author of a new series, put it in front of them in
a cheap paperback, and mark it down.

Trying to match pricing with online retailers is a fools' errand,
but that doesn't mean publishers should be inflexible on price, or unwilling to
run pricing promotions with greater frequency, and across a greater number of
titles. Sure, the margins are lower, and will be made even lower by pricing
promotions, but it beats the diminishing returns publishers are seeing now.
What would you rather have 20,000 full priced mass-market paperbacks of which
you only sell 10,000 or 100,000 mass-market paperback sales, only 10,000 of
which you sell at full price?

Amazon's already set pricing expectations low, publishers can't
help that. But they can attempt to compete, rather than to surrender. In
the process, they'll be creating the next generation of stars by lowering the
barrier of entry for new and upcoming authors.

Today's discount paperback author is tomorrow's best-selling
hardcover author. The way things are going for debuts, there are authors who
can make sales regardless of price, and then there are authors with the
best-reviewed $30 hardcover no one is going to buy. Apart from being
ruinous for authors' careers, it's ruinous for publishers as a whole. Relying
on hardcover/trade sales as a major tent pole is a risky proposition.
Having a more even distribution among hardcover, paper, and e-book debuts
(as well as a healthy backlist, more on that later) is a much better
strategy.

A publisher that is reliant on a few authors who can command the
sort of readership that will pay for the premium edition, and that ignores the
power of pulp, is going to circumscribe itself and become vulnerable to
increased competition among other publishers and disruption from online
retailers. They're also going to send a message to the midlist, whether they
mean to or not, that midlist authors would be better off self-publishing, which
simply isn't the truth. Everyone is better off by having a publishing
industry that's prepared to sell books to the mass-market and make more money. And when it comes
to money, publishers should really be using it to...

Invest in Authors

In addition to selling more books, publishers need to buy more
books, and they need to be more flexible when it comes to deal making.
Publishers need to be broadening their offerings, not shrinking their
lists. Readers are voracious, and they're looking for expansive selections, and
more diversification within genres. The single-minded focus on retaining top
sellers is turning publishing into a zero-sum game. Resources are being
wasted on inflated advances that could be put to better use broadening the pool
of potential future bestsellers. Nobody in this business has a crystal
ball, and often books bought with little fanfare succeed far beyond
expectations, while books with six-figure advances go down in flames. If
the publishing CEOs want to lay down a cost-saving policy, what they ought to
do is cap the budgets available for auctions, and allocate the savings to new
acquisitions. The voracious e-book reader has increased demand, and
unless publishers want to see that gap filled with self-published authors selling their wares primarily on Amazon, they
need to step up and start buying.

Another major obstacle is publishers' attitudes towards successful
self-publishers. There's a tremendous opportunity to parlay the success of
self-published authors into physical sales, but publishers are leaving these
deals on the table, unless they can get a hold of e-book rights in addition.

Self-published authors would love to have an entrance into the physical
marketplace. They have nothing to lose, and publishers could have rights
cheaply for books that have a proven sales track record, and a legion of online
fans willing to recommend the paperback to their antiquarian book-buying
friends. It used to be publishers made money by publishing paperback runs
of popular small-press hardcovers. The same paradigm can work here, and
it shouldn't take a Hugh Howey level sales, and permission from the CEO, to
convince a publisher to offer a print-only paperback deal to a self-published
author.

While publishers are doing short-term thinking, Amazon is playing
long ball, and consolidating their power. Publishers meanwhile are
withdrawing from the physical marketplace that is the fulcrum of their power,
and contributing to their own irrelevance by writing off self-published authors, effectively ensuring that a whole group of potential customers can only find the
authors they like on their Kindle.

The rationale behind the e-book-rights-or-nothing attitude is that
this will somehow frighten the publishers' big-ticket authors away from trying
to self-pub their own e-books, and seek print deals separately. Publishing
executives who think this strategy is wise are communicating to their staffs
that they have little faith in their judgment and abilities. Acquiring editors
should be empowered to negotiate these sorts of deal terms without corporate
preconditions, and based upon their own calculations and knowledge. Publishers
are also giving short shrift to the real work that goes into creating a fine
digital product (interior design, coding, cover design, editing).

This amounts
to an admission that publishers really do have nothing to offer authors when it
comes to the digital marketplace, if the only way to get an author to agree to
hand digital rights over is by holding print rights hostage. If nothing
changes regarding royalties for digital rights, this attitude is only going to
become more pervasive. And as publishers continue to reduce print runs,
the bargaining chip of print rights is going to be severely diminished.

Consider the author whose sales numbers are beginning to look
pretty lopsided in favor of e-books: what power do the publishers think they
are going to have over them when there's no longer a financial advantage to
selling a print edition as compared to the serious advantage of going e-only for a 50%-70% royalty?

On that note, there is a simple and elegant solution to the issue of e-book
royalties, and it's one that should be familiar to publishers already. That
solution (as mentioned by me many times before) is...

E-Book Royalty Escalators

It costs money to make a good e-book product. It costs money
to edit, it costs money to design, it costs money to convert to multiple
formats and distribute across multiple platforms, it costs money to promote and
optimize for search. And this money is not for nothing, it's why publishers,
despite supplying only about8%
of the total e-book titles nonetheless take in 50% of total e-book revenue.
For the first 1,000 to 5,000 sales, the publisher is really earning that
75% of net receipts. After that? The per-unit overhead cost of an e-book
begins to shrink to nothing, and that's where the author’s share of income
should start to rise proportionally.

For those of you unfamiliar with the e-book royalty escalator, it
is not an actual set of moving stairs comprised of sales data, but rather a
graduated raise in revenue splits based upon number of units sold. For
hardcover copies, the standard royalty escalator looks something like: 10% of
the list price of a book for the first 5,000 copies sold, 12.5% for the next
5,000 copies sold, and 15% for every copy sold over 10,000 copies. In e-books,
there's a flat royalty based upon net receipts, and that flat royalty could
probably use a few more steps.

Exactly how much to raise the e-book royalty, and at which levels
of sales, I can't say with any great authority, but it suffices to say the
publishers should start doing the math to figure out what the standard
escalators ought to be, and then they should be prepared to negotiate fairer
revenue splits on a case by case basis (some authors sell a lot of e-books as
compared to physical books, some don't). The deficit between their royalty of
25% of net receipts, and Amazon's 70% royalty is simply too staggering to
ignore for published authors. Even if they appreciate the value their
publishers impart, and they love their editor, and they want to reach their
print readership, they also have bills to pay, and you can't pay them with the
satisfaction of holding a well-designed hardcover.

Likewise, if publishers want to make a strong case for successful
self-publishers to grant e-book rights to them, they need to be able to
compensate them for those rights in a way that at least pretends to be
competitive with self-publishing platforms' generous royalties.

Finally, publishers missed a terrific opportunity to shore up a windfall in long-tail backlist e-book sales by being penny-wise and pound-foolish when it came to negotiating e-book royalties, and devoting resources into backlist curation and cultivation. 25% of net receipts flat for a backlist title is too little, and though publishers have madeconcessionsfor popular backlist editions and famous estates in the past, they've been less willing to give a square deal to every author and estate with a sizable e-book backlist to offer up. In the interim businesses likeOpen Road Media,Rosetta Books,Constellation(run by Perseus), and Premier Digital Publishing, have been drinking their milkshake by offering more competitive royalties. Opening negotiations with reasonable escalators, and noting the advantages big publishers have when it comes to negotiating distribution fees, and distributing across all platforms is a surefire way to stem the tide.

The e-book royalty escalator would be a great boon to publishers
in retaining top talent, enticing new and exciting authors from the booming
self-pub world into the fold, and welcoming back authors and estates to share their
backlists with new generations of readers. E-book royalty escalators, in
addition to being fair, will also do little to hurt the publisher’s bottom
line, and may even help it by adding more e-books to their catalog.

The Long Tail (or more appropriately The Long Tale)

Hyperion apparently hasn't been reading its own books, because despite publishing The Long Tail in 2006, it is now divesting itself of it's sizable backlist to focus on "synergy" (see: Disney movie/TV tie-ins). For those publishers without a powerful media dominating parent company, relying on synergy isn't going to save them from consolidation. The long tail is a simple principle, one that should be familiar to publishers, since it's the business model Amazon is currently using to thwart them. Too many publishers treat a big list like a burden, when, in fact, it's their greatest asset. The problem is making it work for them.

An inert long tail isn't good for much, you've got to shake that money-maker. That means ramping up conversions of out-of-print but under-contract books into e-book (Publisher's Weekly notes that when they looked back at previous best-seller lists, only a fraction of those old best-sellers had been converted into ebooks) and getting the metadata right. It means devoting marketing resources to target whole groups of books based upon market conditions (i.e. around the time Osama Bin Laden was killed in a Navy Seals operation, books about Navy Seals suddenly became a hot commodity, and backlist e-books about Navy Seals seemed to be popping up out of nowhere, some by publishers but many uploaded straight to Amazon by the authors themselves). And it means exerting at least as much effort on their backlists as their frontlists.

Publishers are trying, but they could be devoting more resources, both to curating the backlist from an editorial and marketing standpoint (serving up e-books to readers based upon current market trends at prices designed to move copies) and to obtaining the digital rights necessary, or amending agreements to include fair royalties in order to exercise rights. At each of the major publishers there are a handful of contracts associates charged with sending out thousands of boilerplate amendment letters. I've gotten several for authors who were not interested in handing over rights, and never received a follow up from the publisher to see whether the author was indeed interested, much less to negotiate for better terms.

Institutionally, publishers need to treat the backlist like the major revenue generating power center of their business, and devote resources to retaining rights, and promoting backlist titles (both individually and by theme, subject or category) in ebook. There's terrific amounts of money on the table here that just requires the publishers to make the appropriate amount of investment.

Summation

Just to recap, publishing is in a funk, but it needn't be. There are things that can be done to correct this slump. Reading is becoming more popular, and publishers should stop conflating the rise in e-books to the decline in print sales. They're separate phenomena. E-books are nothing to lament, but should be pursued with gusto as part of a two pronged approach to maximize sales in the physical marketplace as well.

In order to manage this publishers should not give up on the mass-market, and should be pioneering ways to make books ubiquitous and affordable. Publishers need to break themselves of their reliance on big box stores and big online retailers. To do this publishers should be divvying up their marketing and promotions budgets to serve a larger and more diverse set of retailers, and targeting smaller retailers for exclusive promotions in exchange for customer information about the habits of readers as end users. As part of this effort in the digital realm, publishers should drop DRM, and look to empower smaller distributors, rather than allow online retailers to use publishers' content against them.

On the acquisitions side, publishers can truly do more with less by capping the amount of money available for auctions, setting a target for increasing their acquisitions of debut authors and assigning a budget appropriate to the task. In order to attract talent, in lieu of big advances, publishers should offer more competitive e-book royalties, using escalators as a method of compensating authors fairly, while reducing the risk of potential overcompensation. Increasing the number of new acquisitions will help increase the chances of finding a hit, spread the risk of failure, and eventually aggregate more books to add to a publishers long tail backlist.

Publishers should cultivate their long tail by being comprehensive in their approach to retaining rights, being flexible when it comes to negotiating, and looking for creative ways to sell backlist titles using the market data available.

There are real opportunities for growth out there that publishers are uniquely positioned to take advantage of, and they should start seizing those opportunities now.

Mostly though, I want to leave those in publishing with the following message: You are needed. Be fearless.

Change can be hard, but it doesn't have to result in malaise. Despite the naysayers, the world is not marching on without publishers, and publishers do have real value to impart. Readers want superior products (both in the physical and digital worlds), and publishers can deliver. Authors want better ways to connect to their readers and publishers can deliver. Bookstores want better merchandising, and pricing flexibility, and selection, and publishers can deliver. It's time to stop feeling sorry for yourselves, and do the hard work of making that happen. I believe publishers can do better.

For those working in the trenches, it means having the courage to
tell your bosses when they're doing something wrong, and presenting them with
options on how to do things better. For those of you who feel stuck, get
unstuck. Shake things up, make noise, and if that doesn't work then
consider going with an employer who values your work, and your input. Life is
too short to waste doing shoddy work, or promoting a failed strategy, or
reading a bad book. You owe yourself better than that, you owe authors better
than that, and you owe readers better than that. If you can do that, I
believe things will get better.

For those in charge, it means making bold decisions, listening to staff, and consulting outside experts
in areas of potential growth. It means trusting the evidence, but it also
requires having a bit of faith in readers, and in authors, and in your staff.
Most of all it means looking at the future as a great opportunity, rather than
threat. If we can all do that, I believe things will be better.

Go forth, and sell more books. Malaise is for the people who would stand in your way.

Why you should care

I'm a young agent, which means I'm actively looking for new clients. I spend my work days making submissions, negotiating contracts, and dealing with the various hydra heads of publishing (contracts, royalties, editorial, marketing, subsidiary rights, permissions) on behalf of our agency's many active clients. Outside of work I read queries and manuscripts constantly. In my limited time as an agent I have gleaned at least some knowledge as to how this whole publishing thing is supposed to work, and I would like to share this information with you.
Feel free to follow me on Twitter @EvanJGregory Writer's Digest Profile.AAR Profile